“Central banks are great believers in smooth transitions. Unfortunately no central bank has ever managed to achieve one," Montier told The Australian Financial Review on Monday.

“The smooth transition is an illusion of control and the idea is not well empirically supported," he says.

The RBA is pinning its hopes that a lower cash rate will allow interest rate sensitive sectors of the economy such as housing to pick up as mining driven growth tapers off.

But it’s the ultra-low rates and easy money policy fostered by central banks such as the US Federal Reserve that is making life difficult for Montier and other so-called value investors.

“This is probably the toughest ­environment for value investors for a long long time because there just aren’t any value-based opportunities," ­Montier says.

In a world where central banks have held bond rates below the rate of inflation, investors have turned to riskier asset classes such as corporate bonds and shares, bidding up their prices to levels Montier sees as expensive.

But it’s his only real option given the low returns on bonds and cash. “The really hard thing is how you deal with a world where your safe-haven assets are very expensive," Montier says.

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“You are left trying to balance two unappealing outcomes – do I deliberately invest with low returns or do I invest in equities at unattractive rates of return?"

In other words, US Federal Reserve chairman
Ben Bernanke
has Montier exactly where he wants him – in the sharemarket.

Montier is not enthusiastic about holding equities, given their lofty value. “They are not attractive and there is only so much you can take of owning something that is not cheap," he says.

Montier’s fund owns European and Japanese stocks acquired on the cheap and high-quality companies with low debt levels, which he regards as providing the ­highest margin of safety.

He believes there are substantial risks in equities, particularly as most governments in the developed world curtail spending to reduce their deficits. “The US is really moving to a path of fiscal tightening. That impacts profit margin and does undermine the case for equities – it’s the biggest threat to ­equities in my mind."

Montier and GMO are also disdainful of bonds at their current low yields. The fund sold its remaining government bond positions last year.

The move has been justified by rising bond rates. US and Australian rates rose to 12-month highs on the back of Friday’s positive monthly jobs data in the US.

“You could say that we really are ­witnessing the death of an asset class in fixed income," says Montier, referring to the Keynesian concept of “the euthanasia of the rentier".

“The rentier is someone who lives off the income. When capital is scarce you expect to get paid for being able to provide capital, but when capital is plentiful why do you expect to be paid for it, and this is a world where capital is plentiful and the Fed is saying, ‘Look, here is as much capital as you want’."

Montier doesn’t forsee a spike in yields because central banks can continue holding rates down for short and long-term bonds.

“People who are buying bonds are just picking up pennies in front of steamrollers," he says.